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Transfer Pricing Alert: Amendment to Secondary Adjustment Computation Rule

09 October 2019

On 30 September 2019, the Central Board of Direct Taxes (CBDT) vide G.S.R. 701(E) introduced amendments to Rule 10CB of the Income-Tax Rules, 1962 (the Rules). Rule 10CB provides for computation of imputed interest (referred to as secondary adjustment) in cases where pursuant to a primary adjustment (difference in the price offered to tax by the taxpayer and that arrived at by the tax authority in cases of International Transactions with Associated Enterprises / group company i.e AE), the taxpayer in doesn’t receive balance money from the AE within the specified time period (i.e ninety days)

We, at BDO in India have summarized the amendments below:

I. Clarifying the term “excess money”

The CBDT has substituted the words “excess money” [appearing at sub-rule (1) and sub-rule (2)] with the words “excess money or part thereof” which reflects the intention of these provisions, as the imputed interest is to be computed and offered to tax only to the extent of amount recoverable (and not the total amount) on account of primary adjustment beyond ninety days (as already existing in the Rule before the amendment.

II. Amendment / Clarification  to compute the time limit for repatriation of excess money or part thereof in certain cases:

A. An Advance Pricing Agreement (‘APA’)

Sub-clause added to the clause providing cases of computing time-limit for interest computation in cases where APA is entered into by the taxpayer post the due date of filing the tax return. The ninety day  time-limit would be computed from the end of the month in which the APA has been entered.

In other cases, where APA is entered into on or before the due date of filing of return of income the provisions remain the same, i.e the ninety days period is computed from the date of filing the return under the Act

B. Mutual Agreement Procedure (‘MAP’) under a Double Taxation Avoidance Agreement 

Sub-clause capturing scenario of secondary adjustment resulting pursuant to a MAP is amended to provide for the period of 90 days to repatriate shall begin from the date the tax officer gives effect to the MAP under Rule 44H. Before the amendment, the calculation of 90 days was from the date of filing of return of income under the Act.

This again seems clarifying the unwarranted scenario where the burden on taxpayers would be increased in cases where the MAP resolution or order giving effect to MAP resolution is passed after the due date of return under the Act                                

III. Insertion a new sub-rule (3) to Rule 10CB of the Rules to provide clarity with the period or computing imputed interest to be charged on the excess money or part thereof not repatriated within the time limit of ninety days 

Different scenarios have different trigger points for computation of ninety day time-limit and hence are tabulated below for ease of reference:



Cases where primary adjustment has been made in case of a taxpayer

Period from when  interest is to be computed from the


Suo-moto by the taxpayer in the return of income

Due date of filing of return u/s 139(1) of the Act

By an APA entered on or before the due date of filing of return u/s 139(1) of the Act

Taxpayer exercises the option as per the safe harbour rules


Determined by  the order of tax officer  or the Appellate Authority, that has been accepted by the taxpayer

Date of the order of tax officer  or the appellate authority


By an APA entered after the due date of filing of return u/s 139(1) of the Act

End of the month in which APA has been entered  


Where an agreement has been made under the MAP under a Double Taxation Avoidance Agreement

Date of giving effect of the MAP resolution by the tax officer under Rule 44H


IV. Explanation added to clarify the Exchange rate to be adopted to compute value of the international transaction

The newly introduced explanation states that an international transaction denominated in foreign currency shall be converted into rupees equivalent by applying the telegraphic transfer buying rate (used by State Bank of India under the guidance of Reserve Bank Of India) which prevails on the last day of the previous year in which such international transaction was undertaken.

BDO Comments

The amendment to the Rule is primarily to give clarifications on various operational / functional aspects of the computation of the time-limit for the cases which result into secondary adjustment where primary adjustment is either made or accepted by the taxpayer.

This helps the authorities and taxpayer to avoid unintentional interpretation challenges and align the intent of the provisions with the expected outcome.